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Budget 2015

In the budget 2015 there was very little about the UK progress towards its carbon targets for 2020. DECC (Government Department for Environment and Climate Change) had its annual review at the turn of the year. At this point Ed Davey admitted that progress towards the Renewable Heat target is not doing as well as expected and “they” (who ever gets in in the next general election), will have to do better.

The RHI was delayed in coming out, however in the first year of the Domestic Renewable Incentive there has been reviews and tariff reductions. The next one taking place on the 1 April where the tariff will drop to 8.93p per kWh. The Non Domestic Renewable Heat Incentive for small biomass will also fall to 5.87p per kwh. Other technologies remain the same, apart from Anaerobic Degestion. In some respects this is positive news. The uptake of biomass is on the increase, but “not enough”. The reduction in tariff means that companies will have to review where they are targetting potential installations.

If your a dometic home owner and use 15000 kWhs per annum the domestic RHI is now worth £9376 in payments over 7 years. To install a domestic wood pellet boiler within this budget is possible, but many companies who install Austrian or German boilers will find this difficult. This may be for a 3 bedroom detached, but well insulated home. If you need 55000 kWhrs and require a 40kW boiler you will receive £34,380. This is a far more achievable budget for a much larger home. It may be that this home owner (large home with more than 6 bedrooms) finds the Domestic Renewable Heat Incentive much more attractive. They may be able to afford a larger hopper for automatic fuel distribution and get an attractive return for the amount that they have invested. This quick analysis suggests that the very large home owner will benefit significantly more from the Domestic RHI.

With regard to the Non Domestic Renewable Heat Incentive the new tariff means a maximum return of £306,984 over 20 years for a 199kW biomass boiler installation. Many businesses require a 5 year payback as part of their procedures. This suggests that the system cost is a maximum of £76,000. Again this is more difficult to do with more expensive boilers.

Part of the difficulty for both the home owner and the organisation is the cost of fuel. Oil is currently around 40p per litre and in the short term this price will not change (with OPEC prices staying low for perhaps the next 3 years). The latest Energy Savings Trust figures from Feb 2015 suggest that fuel prices are very similar between oil, gas and wood pellets. LPG and Electricity are much more expensive.

Fuel prices

Gas

Oil

LPG

Wood pellet

Average price (pence/kWh)

4.29

5.36

8.32

4.77

Standing charge (£/year)

£87.92

There are arguments and counter arguments over what will happen to the prices of each fuel over the next 7 years (domestic) or 20 years (Non domestic). What is true is that the pellet market has more room for new suppliers or substitute products. For instance it is possible to make pellets out of straw, AD husks, biocoal, none of which are approved by the RHI just yet, but they may well be introduced over the next few years. This potentially keeps prices low.

There is an issue with electricity prices over the next 5 years or so. The UK has a legally binding 2020 CO2 target. 2/5 of our CO2 emissions come from coal power stations which are due to close down. In the last 5 years of this government it is not clear whether there has been much progress made on Nuclear Power. Austria, and now Luxemburg are objecting to the “subsidy” beig offered to EDF to build the plant at Hinkley. This may well delay further the construction for possibly another decade. We are facing a shortage of electricity. Choosing electricity for heating only adds to the issues that the grid already faces.

In summary – the fuel market is confusing as it is not behaving according to its supposed long term trend. The governemnt is aware that renewable heat can help meet the CO2 targets for 2020, but the RHI scheme has reduced its tariffs and this will impact on a number of sectors of the renewables industry and hamper the growth that the UK needs.

Wood Pellet Solutions is a division of Renewable Living and imports wood pellet and log boilers for the UK domestic and commercial market. To enquire how to make the most of your opportunity to move away from fossil fuels please contact us on our contact page, or phone 01225 580 401.